Concerns of Intellectual Property in Bankruptcy

Banker Resource
March 15, 2013 — 1,382 views  
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The intellectual property (IP) law mainly aims to protect the rights of original creative work. This law is also meant for avoiding confusion among consumers regarding the ownership and right over IP. This generally includes patents, copyrights, mask works, patent applications, and trade secrets. These rights are usually dependent on contractual licenses. But your IP rights can be seriously affected, if there is an instance of bankruptcy filing by one of the parties who is involved in the contract. Bankruptcy is a legal state in which a whole organization or a single person is not able to pay back the debts that it owes to its creditors. The bankruptcy filing can affect the non-debtor in a significant way, if the debtor is a licensor or a licensee.

The Debtor as a Licensor

If the debtor is a licensor in a case involving intellectual property in bankruptcy, then he/she can either assume or reject the license, according to his will. Usually a debtor, who is a licensor, can assume a license if it satisfies the same criteria that are required for assuming other contracts which are executory in nature. The tests will provide an adequate assurance on the future performance of the licensor. If the debtor continues to perform in a satisfactory manner, then the whole issue may be even overlooked, and the license may not get rejected. However, many licensees fear the losing of their rights to the licensed IP, in case a rejection of the license occurs.

To attend this concern of the licensee, a special protection act has been included in the bankruptcy code. This act provides licensees with special protection that enables them with the power to retain the rights to the IP which is licensed, if the debtor rejects the license. This act protects the licensee from being denied of his/her lawful rights to make use of the licensed property. In return for this, the licensee must agree to make royalty payments for the IP. But the special protection act of the bankruptcy code does not over trademarks, and so the licensees are at a risk of giving up their trademarks in the event of a bankruptcy.

The Debtor as a Licensee

According to the bankruptcy code, executory contracts can be assigned by the debtor to third parties, if the defaults are cured and assurance of future performance is given. But, in the case of an intellectual property in bankruptcy, if the debtor is a licensee, then an exception to this rule can come into play. In such a case, the patent holder can prevent the licensee from assigning and assuming a non-exclusive license, without the licensor’s consent to a third party. This can be done under the provision of the “applicable law”, which precludes the assignment of IP rights under a legal license, without the consent of the licensor.

In certain states, the law not only gives the licensor the right to prevent a licensee from assigning a license to a third party, but it also interferes with the right of the licensee in keeping the license for himself.

Legal Advice Necessary

If you ever face a situation of a bankruptcy case filed over intellectual property rights, then you should get legal advice as soon as possible. This will help you to know your position in the case and will also assist in protecting your IP rights, irrespective of the fact whether you are a licensor or a licensee.

Banker Resource